Category: Marital Property

Financial Fault in North Carolina Property Division

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Traditional marital fault, such as abandonment or adultery, does not matter when the judge divides marital assets in North Carolina. Generally speaking, equitable distribution of marital property is strictly a math calculation, similar to a business transaction. There is a very strong policy for the courts to divide the marital estate equally unless there is some special reason why the marital assets are not equally divided. Although marital fault does not apply in property cases, the court may consider financial fault. When one spouse wants more than 50% of the marital property, he or she has the burden of proving a special reason or factor applies.

What Counts?

Sometimes, the same behavior that is considered marital fault is also coincidentally the same behavior that constitutes financial fault. Some of the special reasons (called factors) the judge can consider when deciding whether to divide marital property unequally based on financial fault include:

(1.)  Acts to maintain, preserve, develop, or expand marital property.

(2.)  Acts to waste, neglect, devalue or convert the marital property.

(3.)  Any other factor the court decides is just and proper.

Examples

A spouse can argue the first two reasons listed above would apply when the other fails to maintain and repair a residence or other property, changing title of property to someone else trying to conceal it, or mismanagement of assets. Another situation falling into the category is a spouse hiding debts and the unintended consequences that impact the other spouse. Spouses may find out too late that the other must file bankruptcy on joint debts, leaving him or her holding the bag for those debts, or that there are lawsuits that could result in judgments that may be liens on the family home in some cases. Another situation allowing a judge to consider giving one spouse more than 50% of the marital estate is when one can’t pay a marital debt and the other intentionally refuses to pay the marital debt, such as a mortgage, and perhaps choosing to let a home go into foreclosure rather than have it awarded to the other spouse.

The Catchall

The last reason above, labeled “any other factor,” can be anything the judge determines is important after hearing evidence from both sides. This is a catchall for a party to ask the court to divide the marital assets unequally. Although it is not specifically listed by the statute, gambling away substantial marital savings could be an example of financial fault. One North Carolina Court of Appeals case found financial fault when the wife removed truckloads of marital property from the marital home immediately before they split. Another case found it when the husband was in a bigamous marriage and had a secret family. When someone spends substantial money buying a significant gift for the person with whom he or she is having affair can be financial fault, as well as marital fault.

Separate Property in a Nutshell

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NC Gen. Stat. §50-20 defines marital property and separate property for purposes of equitable distribution, the division of marital assets in North Carolina. Marital property is generally property either of you acquire during the time you are married and live together, so long as the property exists when you separate. There are certain distinctions concerning assets and debts during the time period after spouses separate. A case can become quite complex because there are also assets that can be mixed, being partly marital and partly separate. If debts for an asset were paid with marital money, for example, the asset might be mixed in nature. This article focuses on assets that are purely separate property.

Legal Definitions

Separate property is property you acquired before you got married. This applies not only to personal property, such as a vehicle, but real property as well. If you can prove an asset was one you inherited, it will be your separate property. A gift to you alone, not to you as husband and wife, is separate property as long as the gift is not from your spouse. In a peculiar twist, the statute says if your husband or wife gives you a gift while you are married and living together, that gift is marital property and not your separate property, with one exception. If your spouse says the gift is your separate property when the gift is given, it will be.

Professional licenses and business licenses that cannot be transferred are separate property. For example, a law license or medical license is separate property. Do-It-Yourself definitions are sometimes called pre-nups or pre-nuptial agreements.  Valid signed pre-marital agreements can be used to substitute an agreed-upon definition of separate property that is different from the definition used in the statute. Such an agreement can define separate property by title, meaning the spouse who bought an asset in his or her sole name while married and living together owns it as separate property. Similarly, people can agree who keeps what in a separation agreement, which is also a contract.

Do-It-Yourself Definitions

Sometimes called a pre-nup or pre-nuptial agreement, a valid signed pre-marital agreement can be used to substitute an agreed-upon definition of separate property that is different from the definition used in the statute. Such an agreement can define separate property by title, meaning the spouse who bought an asset in his or her sole name while married and living together owns it as separate property. Similarly, people can agree who keeps what in a separation agreement, which is also a contract.

We’re Splitting Up: What About the Pets?

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Like many people, I have a cat. Okay, maybe I have a couple of cats. They sleep most of the time but they are warm and fuzzy and do something that makes me laugh on a daily basis. They are both orange and I have a habit of referring to them as the twins. Today,  many people think of their dog, cat or other pet as a family member. These pet owners often have more than one pet.

What Happens to Pets When There’s a Separation?

In North Carolina, pets caught in divorce generally are considered personal property and the court has the same authority to distribute them to a spouse or former spouse in the same manner as a coffee table. When there are children in a separation or divorce, the court must consider only what is in the child’s best interest when determining who has custody of that child, regardless of what the parents want or need. In contrast, when the court determines which person will keep which pet, there is no legal requirement that the judge base his or her decision on the best interest of the animal. Moral or ethical standards are not necessarily the same as legal requirements.  In marital property cases, judges will assign a value to an animal and grant ownership of it to one of the parties as he or she sees fit.  The reasons a judge has for ruling on who keeps a pet are his or her own, made in his or her discretion.

Legal Trend

There is a trend in the legal world towards animals having a meaning greater than the coffee table or some other piece of property, even if the trend starts with baby steps.  In child custody cases, a judge may require the pet to go back and forth with a child for visitation at each parent’s home, which is presumably done because that would be in the child’s best interest. North Carolina has created very specific legislation to allow the court to consider the pets when there is domestic violence in a family, even where there are no minor children. NC Gen. Stat. §50B-3 says the court may “Provide for possession of personal property of the parties, including the care, custody, and control of any animal owned, possessed, kept, or held as a pet by either party or minor child residing in the household.”

Options?

Most of the time, people can reach some agreement about who keeps the dog or the cat. It is uncommon for people to leave it to the judge to award a pet to one spouse or the other.  But what can pet owners do to resolve these disputes based on what they think is in the pet’s best interest?  If both people agree, they can enter into a contract concerning their pets. They can specify where the animal(s) will live or be pastured, set aside regular visitation times for each person to see the pet, and even arrange for the costs and medical care. The great thing about a contract is people can customize it to fit their needs instead of relying on a judge and the law.

What is a Separation Agreement?

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A Separation Agreement and Property Settlement is a voluntary contract between a husband and wife of ex-spouses. It may be signed no sooner than separation, and may be signed at some later date, even after the parties divorce. The parties can settle some or all of the issues, including child custody, spousal support (alimony), child support, and division of marital property and debts (equitable distribution). The laws are written to encourage settlement instead of litigation. Therefore, a properly drafted separation agreement is extremely difficult to change or void.

What Things Can We Include in the Agreement?

Because they are contracts mutually agreed upon, separation agreements can include just about anything. One of my favorite war stories involved a case where we agreed on horse custody and visitation. We even included terms for which farm the horses would stay and whether each “horse parent” would be entitled to allow future romantic partners to ride the horses. That type of outcome will never happen in court. In our state, horses are legally treated as personal property no different than a television or set of china.

Express Lane: Is There a Form I Can Use?

Even some attorneys who don’t handle family law cases, or just  dabble in family law, do not realize there is no “boiler plate” form.  In fact, separation agreements are popular because they can be customized to whatever terms agreed upon by the parties. Imagine going to a mechanic and asking for “the standard repair.”  All cars have tires and a steering wheel, but a Corvette and a VW Bug don’t call for the same repairs.  It is no different with attorneys who draft separation agreements. Some are very complex, but others might not be.

While separation agreements do have certain magic words for the more routine things, such as jurisdiction of the court to interpret the agreement for example, a good attorney will address dozens of other issues specifically. For instance, the agreement might include a disclosure paragraph that dictates whether the parties are obligated to tell each other about hidden assets, inheritance rights, or address certain significant tax consequences.

Buyer’s Remorse: Enforcement

Separation agreements can be written to spell out the types of enforcement mechanisms that will be used if it is violated. The agreement may be treated like a contract, which is enforced by a lawsuit based on breach of contract. Other times, the agreement may be drafted to become a court order at some later date, enforced directly by the court. The agreement can say that violations will trigger certain consequences. Or, it may dictate when and how child custody and/or support lawsuits can be filed at some later date. All of these enforcement options are another example of ways attorneys draft agreements based on each client’s specific needs and priorities.

Free-Trader Agreements in North Carolina

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When a married couple separates, if they can reach an agreement on all of the issues between them, they may choose to sign a separation agreement. A separation agreement is a contract that says how they have agreed to divide property and debt, how family support will be provided, if any, and what they will do about parenting time if they have children together. One of the usual terms contained in it is a free-trader-agreement (FTA). If there is no separation agreement, an FTA can be a short contract by itself.

What’s the Problem?

When married couples acquire a mortgage loan, both usually sign the promissory note, which means they both have a legal obligation to make mortgage payments. That’s pretty straightforward. But when only one spouse signs a promissory note, only he or she owes the money. To oversimplify the problem, if the home-owner dies before becoming divorced, the surviving spouse has no legal responsibility to make the mortgage payments. But regardless of the fact that a married couple is separated, as a spouse, the non-home-owner would still have certain inheritance and survivorship rights to the property.

Remedy #1 – Free Trader Agreement

Mortgage lenders regularly require separated parties to sign an FTA, which is an agreed-upon right for each spouse to buy (i.e., trade) freely (i.e., without interference from the other) before they lend money to buy a home. The mortgage company will own the home if they foreclose on the loan. They don’t want to share ownership of the home with the other  spouse who isn’t even obligated to make mortgage payments. The purpose of an FTA is make sure the non-buying spouse waives all claim to the house, including inheritance and/or survivorship rights.  These agreements clarify that either spouse is free to get a mortgage in his or her name individually, without the signature of the other spouse. FTAs are recorded at the office of the Register of Deeds, which makes them public record. With the agreement, the spouse buying the home has exclusive ownership of it (and the responsibility of paying for it) even though he or she is married. Like all contracts, both parties must voluntarily agree to sign it.

Remedy #2 – The Divorce

When a divorce decree is granted, the other person is no longer a spouse, so the mortgage lender no longer has the problem of an ex who is still a surviving spouse even if they were separated for some time when the home was purchased. However, in North Carolina, a spouse can’t even file for the divorce until he or she has been separated for at least one full year. When a spouse files for a divorce, it can take two to three months before the divorce decree is granted. When the other spouse refuses to sign an FTA, the only remedy is the divorce, which is nearly impossible to contest because it is based on a one-year separation.